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Credit Card Rewards: Are They Taxable?

We've seen some great credit card sign-up bonuses hit the market so far this year. In fact, some have been worth more than $500 to new cardholders. Hopefully you've been able to take advantage of at least one and are expecting either a big cash back check or a free holiday vacation using all the rewards points you've banked.

If you are expecting a large cash back check from your credit card company, you may also be wondering if Uncle Sam will want his piece of it next tax season too. After all, if there's anything the government claims it needs more of these days, it would be tax revenues! So, does the IRS actually consider your credit card rewards to be taxable income?

Fortunately, personal credit card rewards aren't included in your gross income by the IRS. They're considered to be more of a rebate or a discount instead of actual income, which means you're currently free to use them at will without worrying about the tax consequences.

Phew! Who knows if that rule will ever change though, so enjoy it while you still can.

If you don't already have a rewards credit card, consider comparing some no annual fee credit cards that also offer rewards on the money you spend in the form of cash back, miles, or points. At the very least, you should be able to earn 1% on all your purchases; however, be aware that many cards will offer significantly more to those with excellent credit.

Please note that this card offer requires excellent credit to get approved, so make sure your scores are in the upper 700s before thinking about giving it a shot. Photo by Donkey Hotey

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Joshua Heckathorn was the President and owner of Creditnet.com. He shared his unique insights about credit cards, credit scores, investments, and all aspects of personal finance on Creditnet's blog, Credit¢ents. Joshua received a Bachelor of Science in Management (Finance) from Brigham Young University's Marriott School of Business and earned his Master of Business Administration from Seattle University in 2009.